The 2021 Botswana Budget Speech:A Sign Of A Bleak Future Ahead

Last week Monday, Botswana's Minister of Finance Dr. Thapelo Matsheka presented the country's 2021 budget speech to the National Assembly. Following the year 2020 and all its challenges, it was exciting to see how the country's government was planning with regard to economic recovery in 2021 and beyond. I was disappointed.

There is no denying the economic impact that the COVID-19 pandemic has had not only in Botswana but across the globe. There is also no denying that to try to at least minimize the impact of the pandemic on the population, the government has had to dig deep into its reserves which have always provided a cushion for the country in economic uncertainties of years past.  Lastly, there is also no denying the need for government to try to address the current budget deficit and to also at least try to rebuild the country's reserves for future shocks. However, the way government plans on doing this is where the problem is.

From reading the budget speech, the government argues that although borrowing, both internally through means like domestic bond issuance and externally through lenders like the IMF and World Bank is going to be sufficient in restoring the country's fiscal balance, to achieve fiscal sustainability is going to require an overall reduction in recurrent spending and increase in government revenue streams. The former is a welcome department as government ministries and departments have a long history of fund resource wastage. The latter, however, is where government starts to lose the plot.

Looking at the revenue mobilization strategies outlined in the budget speech, it would seem like the government's definition of revenue streams is solely taking a bit more from citizens by way of increased taxation and levies. This is of course the easiest way of increasing revenue but is it the most sustainable? Absolutely not.

From increasing Value Added Tax(VAT) from 12% to 14% to increase of the fuel levy and introduction of sugar levy as well as finally deciding to start collecting money from a plastic levy they implemented more than 10 years, it is evident that government will in 2021 be adamant is getting what is not rightfully theirs. The reasonings and explanations for these taxes and levies are nothing short of underwhelming.

Starting with the VAT incremental, the government does not really offer a direct explanation of its 2% incremental. Instead, they justify it by arguing that the new VAT is still less than in most countries not only in Africa but the world. This is indeed true. The average standard VAT rate in Africa is 15% and in some countries in Europe like Denmark, it is as high as 25%. However, I believe a much more detailed explanation than "...at least you guys are still paying less than most people..." would have sufficed more.

With regard to the fuel levy incremental, the government justifies it by stating that the levy has not been adjusted to reflect rising fuel prices and VAT rates as is the principle so in short, the incremental is long overdue and the best time for the incremental, they figured, is in the middle of a global pandemic.

The justification for the sugar tax is the most underwhelming of them all. Without citing any sources or studies to support the government's stance, the Honorable Minister stated that the reason the government is introducing sugar tax is that "... many people consume too much sugar, leading to problems of obesity and diabetes..." so the purpose of the tax is to provide an incentive for consumers to shift to drinks with low sugar content. *sigh*

In truth, the main reason the government is increasing and introducing these taxes is not that they are long overdue or because Batswana are too fat from eating too much sugar. It is because the government is unable to come up with more practical and sustainable ways of raising revenue. For an economy that is in dire need of economic diversification, is decreasing the population's purchasing power through these taxes and levies really the best idea? Won't these taxes and levies just serve to make doing business in Botswana harder than it already is?

These panic revenue mobilization tactics— which is what all these taxes and levies are at the end of the day— stem from years of poor governance and misuse of public funds. Yes, Batswana are paying for years of government incompetence in the middle of a global pandemic that is threatening their very livelihoods. The aforementioned taxes are not even the only ones to be introduced this year. Others include taxes imposed on second-hand vehicles being imported into Botswana, withholding taxes on dividend income as well as the introduction or raising of fees for services provided by government ministries and departments, etc.

When concluding the 2021 budget speech, Minister Matsheka stated that these new policies were expected to achieve economic recovery—but at what cost? With job losses looming when the state of emergency finally ends, whenever that is going to be, and with the government making it clear that it will not be providing much employment going forward, it seems like this so-called "recovery" will not do much to improve the livelihoods of the middle class.

As a matter of fact, it seems the goal of it all is to not even to mitigate the impact of the economic downturn on households and businesses but instead raise revenue for the government which, as history can attest, will again be wasted and misused. It looks like the only thing that will possibly save the livelihoods of Batswana will be the procurement of a COVID-19 vaccine as it will at least open up the economy and give those who can to fend for themselves. Let's keep our fingers crossed.